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Fatca: Irish admin groups eye business wins

27 February 2012

Fatca: Irish admin groups eye business wins

Almost a third of Irish-based fund administrators have spotted new business opportunities in the Foreign Account Tax Compliance Act (Fatca), despite hefty compliance costs expected to be brought by the US tax evasion rules.

According to an Irish fund administration report by Deloitte, 29 per cent of respondents say they are looking to exploit the new rules by offering services to “differentiate themselves as bespoke Fatca solution service providers”.

However, the majority of administrators remain convinced that Fatca will pose a “business threat” and are struggling to spot any additional revenue streams presented by the US regulations.

John Bohan, managing director and group operations manager at Dublin-based Apex Fund Services, says that Fatca is just one regulatory change where several small and mid-sized fund administrators are looking to carve out a competitive edge.

“Everyone is looking for additional revenue streams,” says Mr Bohan.

“Administrators are looking to offer additional services based on the changes that need to be made to [investment managers’] internal processes, frameworks and procedures so that managers are compliant [with Fatca] in time.

“Administrators are being required to offer more middle-office services. That could be due to the ongoing requirements of Fatca, but also [the alternative investment fund managers directive] and Dodd-Frank.”

The “common theme” running through most of the regulatory changes, adds Mr Bohan, is that they require “a more robust set of internal controls and procedures” – all of which third-party administrators are willing to take on.

Amy Harkins, managing director at BNY Mellon Asset Servicing says the company is “currently assessing” the implications of Fatca on its services and product offerings due to the “increased regulatory compliance burden”.

“BNY Mellon would agree that for fund administrators there will an opportunity to expand service offerings to meet clients' needs to comply with Fatca,” says Ms Harkins.

The prospect of additional business streams being created in response to Fatca is in contrast to some earlier views that the US tax evasion rules would bring nothing more than a headache for service providers.

“There are no development opportunities with Fatca, only costs,” Bruno Prigent, global head of Société Générale Securities Services told Ignites Europe in December.

“The only opportunities are for the US government. For all players in securities services, Fatca is a potential nightmare.”

Regarding the cost of implementing Fatca, the Deloitte study revealed that 58 per cent of fund administrators anticipate costs to their business of less than €50,000, while 25 per cent are bracing themselves for a price tag up to €200,000.

Just 17 per cent predict Fatca will cost them in excess of €1million.

Despite the opportunities arising for some administrators, Deloitte says the implementation and compliance costs “outweigh any potential benefits of Fatca from a service provider perspective”.

Several providers have voiced concern about the impact Fatca will have on asset gathering and distribution, while others are worried about the cost for funds that have no US investors, but which are still required to complete cumbersome analysis work.

Fatca originally required foreign funds to enter into an agreement with the US Internal Revenue Service (IRS) or otherwise face hefty tax penalties.

Under the original proposals, Fatca would impose a penal 30 per cent tax on any investments in US equities, unless the fund requests every investor to provide evidence on whether or not they are US taxpayers.

However, under new proposals announced earlier this month, firms in Fatca-partnering countries – the UK, France, Germany, Italy, Spain – will not have to enter into a detailed agreement with the IRS, but only register with the tax authority.

In terms of service providers’ readiness for Fatca, the Deloitte study shows 64 per cent of respondents are in an “advanced planning stage”, with the remainder saying they are in the early stages.

No fund administrators surveyed say they are fully Fatca ready.

In addition to Fatca, the Deloitte report shows several business prospects thrown up by AIFMD, with 64 per cent seeing it as an opportunity to launch new services and grow revenues.

Fifty per cent say they plan to offer additional middle-office services as a result of AIFMD, while 21 per cent say they will do so only if requested by clients.

Other findings reveal that 46 per cent of fund administrators expect the financial year to end profitably, with 39 per cent expecting more than a 20 per cent growth in revenue.

Sixty per cent also say they will increase their IT spend during 2012, as a result of meeting new regulatory requirements and rolling out new systems.

Brian Forrester, a partner in the investment management advisory team at Deloitte, says: “Despite the current market uncertainty, fund administrators continue to show resilience as demonstrated through continued revenue growth.

“The challenge will be to deliver services in an efficient and profitable manner. Administrators that strike the balance most effectively will seize the opportunity to exploit the growing fund administration market.”

The Deloitte report was based on responses from 17 fund administrators, accounting for 80 per cent of assets serviced in Ireland.

About Apex Fund Services

Apex Fund Services is one of the world’s largest independent fund administration companies with approximately $20 billion of assets under administration, 24 offices and over 250 employees across the globe.

The Apex Global Network is at the heart of the Company’s strategy of being located alongside its clients. Apex is unique in its ability to reach globally, service locally and provide cross-jurisdictional solutions and best practices providing the highest levels of personalised services.